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Monthly Survey Of Furniture Business From Smith Leonard Accountants & Consultants

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Monthly Results New Orders According to our recent survey of residential furniture manufacturers and distributors, new orders were 5 percent lower in January 2008 than the level of orders received in January 2007, continuing the trend of declines. The decline was at least a little less than the 8 percent declines reported in November and December compared to the same months in the previous year. Interestingly with this report, only 52 percent of the participants reported lower orders, compared to 68 percent reporting lower orders in December. Shipments and Backlogs Shipments in January were 3 percent lower than shipments in January 2007 and were 7 percent lower than December 2007 shipments. The last time we reported an increase in shipments was May of 2006. Backlogs increased 3 percent over December but were 7 percent lower than last January. This compared to a 6 percent lower level reported in December 2007 compared to December 2006. Receivables and Inventories Receivables levels are a concern. With shipments down 3 percent compared to last year and down 7 percent compared to December, we would have expected receivables to decline as well. Instead, they were 6 percent higher than last year and 5 percent higher than December. Hopefully, these results were a matter of timing and will get back in line, but we have noted that many companies are seeing their customers string them out, plus there continues to be dating by companies to try to create more volume. Inventories fell 5 percent from January 2007 but were 4 percent higher than December levels. Inventory levels appear to be in much better shape than receivables. In December, inventories were 9 percent lower than the previous December, so we will still need to keep an eye on inventories. Factory Employees and Payroll The number of factory employees were basically even with the number in December, but were 9 percent lower than January 2007 levels. January 2007 employees were 11 percent lower than January 2006. All of this continues to reflect plant closings and lay offs. Factory payrolls were 7 percent lower than January 2007 and also 7 percent lower than December. December payrolls though are usually inflated somewhat with holiday, bonuses and special pay. National Consumer Confidence The Conference Board Consumer Confidence Index fell again in March after declining sharply in February. The Index fell to 64.5 in March down from 76.4 in February. The Expectation Index fell to 47.9 from 58.0 while the Present Situation Index decreased to 89.2 from 104.0 in February. Lynn Franco, Director of The Conference Board Consumer Research Center said, “Consumers’ confidence in the state of the economy continues to fade and the Index remains at a five-year low (March 2003, 61.4). The decline in the Present Situation Index implies that the pace of growth in recent months has weakened even further. Looking ahead, consumers’ outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon. The Expectations Index, in fact, is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo andWatergate.” Consumers’ assessment of present-day conditions weakened further in March. Those claiming business conditions are “bad” increased to 25.4 percent from 21.3 percent, while those claiming business conditions are “good” declined to 15.4 percent from 19.1 percent. Consumers’ appraisal of the job market was also more pessimistic than last month. Those saying jobs are “hard to get” rose to 25.1 percent from 23.4 percent, while those claiming jobs are “plentiful” decreased to 18.8 percent from 21.5 percent. Consumers’ short-term expectations also deteriorated further in March. Those expecting business conditions to worsen over the next six months increased to 25.4 percent from 21.6 percent, while those anticipating business conditions to improve declined to 8.1 percent from 9.7 percent in February. Leading Economic Indicators The Conference Board also announced that the U.S. leading index decreased 0.3 percent in February, while the coincident index remained unchanged and the lagging index increased 0.2 percent. The leading index declined for the fifth straight month in February. Initial claims for unemployment insurance (inverted), building permits, the vendor performance diffusion index, and consumer expectations made large negative contributions to the index this month, more than offsetting large positive contributions from money supply and interest rate spread. The leading index has declined 1.5 percent (about a 3.0 percent annual rate) during the six-month span from August 2007 through February 2008. In addition, only two components out of ten have increased from August to February. The leading index has been on a downtrend since the middle of 2007, and the weaknesses among its components have become very widespread in the last three months; the last time the leading index worsened for five consecutive months was in early 2001. Meanwhile, the growth in the coincident index has stalled in recent months, after gradually slowing throughout 2007. At the same time, real GDP growth fell to 0.6 percent in the fourth quarter of 2007, down from a 4.9 percent annual rate in the third quarter and an average of 2.2 percent annual rate in the first half of 2007. The current behavior of the composite indexes suggests that increasing risks for economic weakness are likely to continue in the near term. The coincident index was unchanged for the third consecutive month in February. Index levels were revised slightly lower for months November 2007 through January 2008, due primarily to downward revisions to personal income less transfer payments. Employment has contributed negatively to the index for two consecutive months. The coincident index was unchanged between August 2007 and February 2008, and the strengths among its components have become less widespread in recent months. The lagging index increased again in February, and as a result, the coincident to lagging index has continued to decrease. Housing Existing-Home Sales Sales of existing homes increased in February and remained within a fairly stable range, according to the National Association of Realtors®. Existing-home sales – including singlefamily, townhomes, condominiums and coops – rose 2.9 percent to a seasonally adjusted annual rate of 5.03 million units in February from a pace of 4.89 million in January, but remain 23.8 percent below the 6.60 million-unit level in February 2007. The sales pace has been in a fairly narrow range since last September. Single-family home sales increased 2.8 percent to a seasonally adjusted annual rate of 4.47 million in February from an upwardly revised 4.35 million in January, but are 22.9 percent below 5.80 million-unit level a year ago. The median existing singlefamily home price was $193,900 in February, down 8.7 percent from February 2007. Lawrence Yun, NAR chief economist, said the gain is encouraging. “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” he said. “Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.” The national median existing-home price for all housing types was $195,900 in February, down 8.2 percent from a year earlier when the median was $213,500. Because the slowdown in sales from a year ago is greater in high-cost areas, there is a downward pull to the national median with relatively fewer sales in higher priced markets. Home prices within metropolitan areas are more telling. The most recent data shows roughly half of the metro areas in the U.S. with price increases, with healthy gains in markets such as Oklahoma City and Trenton, N.J. “In other areas such as Sacramento, a rapid price decline has induced buyers to come into the market and sales are now rising,” Yun said. “The relationship between home prices, interest rates and income has improved to the point where buyers are more serious about making offers.” Total housing inventory fell 3.0 percent at the end of February to 4.03 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.2-month supply in January. Regionally, existing-home sales in the Northeast jumped 11.3 percent to an annual pace of 890,000 in February, but are 26.4 percent below February 2007. The median price in the Northeast was $264,800, up 0.4 percent from a year ago. Existing-home sales in the Midwest rose 2.5 percent in February to a level of 1.24 million but are 19.5 percent below a year ago. The median price in the Midwest was $143,900, which is 7.1 percent lower than February 2007. In the South, existing-home sales increased 2.1 percent to an annual rate of 1.99 million in February but are 22.0 percent below February 2007. The median price in the South was $163,400, down 8.6 percent from a year ago. Existing-home sales in the West slipped 1.1 percent to an annual rate of 920,000 in February, and are 29.2 percent below a year ago. The median price in the West was $290,400, down 13.4 percent from February 2007. New Home Sales According to the U.S. Census Bureau, sales of new one family homes were at a seasonally adjusted rate of 590,000 or 1.8 percent below the revised January rate of 601,000. These results were 29.8 percent below the February 2007 rate of 840,000. The median sales price of new houses in February was $244,100 and the average sales price was $296,400. The inventory of new homes for sale represented a 9.8- month supply at the current sales rate. By region comparing February with February 2007, sales were off 19.6 percent in the Northeast, 42.5 percent in the Midwest, 27.9 percent in the South and 28.3 percent in the West. Housing Starts According to the U.S. Census Bureau, single-family housing starts in February were 6.7 percent below the January figure of 758,000. Privately owned housing starts were at a seasonally adjusted rate of 1,065,000 or 0.6 percent below the revised January rate and was 28.4 percent below the revised February 2007 rate. Consumer Prices According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in February before seasonal adjustment. The February level of 211.693 was 4.0 percent higher than in February 2007. On a seasonally adjusted basis, the CPI-U was virtually unchanged in February, following a 0.4 percent rise in January. Each of the three groups—food, energy, and all items less food and energy—contributed to the deceleration. The index for food at home, which rose 0.9 percent in January, increased 0.3 percent. The index for energy turned down in February as a 1.9 percent decline in the index for energy commodities more than offset a 1.7 percent increase in the index for energy services. The index for all items less food and energy was virtually unchanged after increasing 0.3 percent in January. The deceleration reflects smaller increases in the indexes for shelter, for medical care, for recreation, for education and communication, and for other goods and services, and a decline in the index for apparel. Retail Sales The U.S. Census Bureau reported that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $380.2 billion, a decrease of 0.6 percent from the previous month, but 2.6 percent above February 2007. Total sales for the December 2007 through February 2008 period were up 3.3 percent from the same period a year ago. Retail trade sales were down 0.6 percent from January 2008, but were 2.4 percent above last year. Gasoline station sales were up 20.2 percent from February 2007 and sales of sporting goods, hobby, book, and music stores were up 6.3percent from last year. Sales at furniture and home furnishing stores on a seasonally adjusted basis were 0.5 percent lower than January 2008 and were 4.3 percent lower than February 2007. Year-to-date, sales at these stores were 2 percent lower than the first two months of 2007. Employment Nonfarm payroll employment was down 63,000 in February according to the Bureau of Labor Statistics. Employment fell in manufacturing, construction and retail trade. Job growth continued in health care and in food services. Average hourly earnings rose 5 cents, or 0.3 percent, over the month. The number of unemployed persons (7.4 million) and the unemployment rate (4.8 percent) were essentially unchanged for the month of February. Durable Goods Orders and Shipments According to advance reports from the U.S. Census Bureau, new orders for manufactured durable goods decreased 1.7 percent in February. This was the second consecutive monthly decrease following a 4.7 percent decrease in January. Excluding transportation, new orders decreased 2.6 percent. Excluding defense, new orders decreased 1.6 percent. Shipments of manufactured durable goods, down three of the last four months, decreased 2.8 percent or $6 billion. Computers and electronic products were down 10.3 percent ($3.8 billion) after two consecutive monthly increases. According to the final report for January, shipments of furniture and furniture related products were down 6.9 percent while orders were down 10.8 percent. Summary The overall January results were not surprising as most of what we have heard the first part of the year has not been much for good news. Overall, business is just not that good. While we are still selling a lot of furniture, we suspect a lot of what has been selling has at some pretty heavy discounts. Rumors from Tupelo were that there were lots of deals available there and we continue to hear of very good deals on some large overstocks of imported items. Hopefully, with inventories appearing to be reasonably in line, some of the selling of overstocks will slow down as those sales really seem to confuse the markets. Most of the people we talk with do not expect much improvement over the rest of 2008. While we were hoping that we might have bottomed out, there continues to be very negative news and commentary about the economy. Consumer confidence is extremely low and all of this negatively is not helping. The stock market is not doing much for consumers and high gas prices are clearly not helping. We also believe it is going to be a while before the housing market improves. We constantly get comments about being so negative and “can’t you write about some positive news?”. We are just having trouble finding much good to talk about. With that said, we are still selling furniture and with the April Market coming shortly, we expect to see some good new product. The spring market always seems to be a great time as the weather is getting better, the flowers and trees are blooming and it’s just a great time of year. Maybe that is what we need to “spring” us forward. We look forward to seeing many of you there. ___________________________ This Furniture Insights® newsletter report has been re-published with the permission of Smith Leonard PLLC an independent member of the BDO Seidman Alliance. Firm Profile: Founded in 1930 by BDO Seidman, LLP, the High Point, North Carolina practice was recently acquired by four individuals who have spent the majority of their 100+ year careers building the existing practice. Beginning January 1, 2007, Smith Leonard PLLC became an independent member of the BDO Seidman Alliance. Partners are Ken Smith, Darlene Leonard, Jon Glazman and Mark Bulmer. Among the firm's 32 employees are 18 CPAs. Service Area – Smith Leonard concentrates primarily in the Triad, but also services companies with domestic locations throughout North Carolina, Virginia, South Carolina and Texas. Smith Leonard has an extensive network of international relationships that helps service their clients’ needs throughout the world with locations in Asia, Europe, South America, Mexico and Canada. These companies range in revenue size of $2 million to $300 million. Practice Concentration – The majority of the client base is composed of manufacturing and distribution companies. Many of its clients are either furniture manufacturers, distributors or suppliers to the furniture industry. Smith Leonard also services companies in retail, transportation, insurance, not-for-profit entities and employee benefit plans. Smith Leonard offers a full range of accounting and consulting services including audits, compilations, reviews, tax planning and compliance. The partners and staff of Smith Leonard also assists clients in mergers, acquisitions, business consulting, cash flow projections, and tax outsourcing. Individual clients benefit from extensive experience in family wealth services including estate tax planning. The firm continues to produce monthly and annual statistics for the furniture industry. For more information call (336) 883-018 or e-Mail: ksmith@smithleonardcpas.com.

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